Can a 2nd lien be placed on a vehicle if the value of the vehicle is worth less then the amount owed to the first lien holder?If the answer is yes can the second lien holder have the vehicle seized?
Quick answer: Yes. There then comes the push-pull between the first and second lien holders. The first is generally the winner here. Unless there is a substantial chance for Lien Holder #2 to actually collect something after Lien Holder No. 1 is satisfied, it doesn't make sense for LH2 to go to the expense. (Business decision.) Remember, also, book value does not necessarily translate into an realized wholesale price. Seized vehicles are normally sold at auction. The actual cash value may be even less than what might be thought.
The first lien holder should have priority over the second lien holder. Depending on the first lien holders financing contract, it may prohibit the encumbrance of the vehicle. By doing so, you ruin the risk of the first lien holder calling the loan and or repossessing the vehicle.
As I said, the LH1 has precedence for distribution of any proceeds. The contract might prohibit the vehicle owner's from adding encumbrance voluntarily (an equity pull, if you will). The contact cannot, however, preclude a 3rd party from placing a lien if he has the judgment right to do so. A judgment creditor is not a party to the contract and cannot, therefore, be bound by its terms. Having said that, the loan contract may trigger an acceleration and calling of the loan in the event of an additional lien being applied. That would be defined by the contract language and something of which the OP should be aware.
